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A 4 - Minute Read
Q. Lewis, what is the Bear Raid Strategy? I heard that George Soros used it to become a billionaire.
A.
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Q. Lewis, what is a Bear Raid strategy? I heard that George Soros used it to become a billionaire.
A. Bear Raid is a technique for exerting influence on another person or organization. It is commonly used by cheaters, con-artists, and stock market manipulators. Interestingly it is not always illegal and is common in our Life Strategies Playbook and Mentoring Method and in gamer psychology.
In a Bear Raid, a player intentionally applies strategies that make a competitor’s potential to succeed seem less than it actually is. This may be done by spreading false rumors or committing fraud of various types and forms in relation to the targeted player(s). It is commonly used by powerful and unethical players against weaker players, especially ones that seem vulnerable. The term is derived from its application to certain illegal practices in the stock market.
Usually, when a bear raid is considered cheating or illegal it involves collusion. For example…
an unethical investor may attempt to push a stock's price lower through concerted short selling, while spreading negative rumors about the shorted company.
an unscrupulous short seller may turn a fast profit from their short positions, leveraging social media platforms and online message boards.
a company that is going through a challenging period, may be the perfect target for a bear raid since its vulnerable position makes it easy fodder for short-sellers. While short selling is legal, coordinated short selling is viewed as market manipulation by the Securities and Exchange Commission (SEC), and spreading false rumors is tantamount to fraudulent activity.
Understanding a Bear Raid
The desired outcome of a bear raid is usually to make windfall profits in a short time through short sales. If the bear raid works and the target stock plunges, short-sellers can buy the shares back cheaply on the open market. The short sellers make money by selling the shares first, at what they believe is a high price, and then buying them back to close out their position at a lower price. The short-sellers profit from the difference.
In a typical unethical and illegal bear raid, short-sellers may conspire beforehand to quietly establish large short positions in the target stock. Since the short interest in the stock increases the risk of a short squeeze that can inflict substantial losses on the shorts, the short sellers cannot afford to wait patiently for months until their short strategy works out.
In politics, business, and in international relations the next step in the bear raid involves rumor, misinformation, fake news, and the Big Lie. Such asmear campaign comes with rumors about the targeted person organization, or country spread by a so-called expert but “unknown sources” This rumor-mongering is often done through social media. These rumors can be anything that portrays the target person, group, organization, or company in a negative light, such as allegations of accounting fraud, an SEC investigation, an earnings miss, financial difficulties, an association with radicals, Nazis, racists, sexual predators and so on. The rumors may cause nervous investors or supposed allies to exit the stock or an alliance. Sometimes they leave quickly and in droves. In the financial markets this will drive the price down further, giving the short-sellers the profit they are looking for.
In politics or international relations, it may put a target of a bear raid in a defensive position forcing them to use up, precious resources to hold or defend their position, preventing them from creating an offensive strategy against an adversary.
While bear raids may involve false rumors, and collusion, which is illegal, there are also legal bear raids that can occur when people remove their support from an individual or group. In the stock market, investors may start shorting a large amount of stock, individually, due to concerns with a company's direction. They may also voice their legitimate concerns. As long as the information is not intentionally false and the shorts are not colluding with each other, a stock may see downward pressure due to the selling and increasing negative news. Many people will still refer to this natural and legal market behavior as a bear raid.
Bear Raids as an Excuse for Falling Stock Prices
The best game theorist are almost obsessive about factual accuracy as they slowly develop long-term strategies. The occurrence of bear raids is a perfect example of why having you facts together is so important. In the stock markets, the best short-sellers know their facts.
Short sellers play an essential role in how the financial markets work. It is often the short sellers who reveal or bring to light major problems within companies. In many cases, these are not fabricated stories meant to temporarily push the price down, but actual facts which could greatly affect the value of the company. While most people are pushing good news to drive prices up, the bears present the opposite side of the argument, helping stocks stay closer to their true value.
In the same way serious, investigative journalism can play an important role in international affairs. It is often journalists, and reliable media organizations who reveal or bring to light major problems within governments. In many cases, these are not fabricated stories meant to temporarily manipulate some public policy, but actual facts which could greatly affect financial markets, democracy, and human rights. While most people support good news to create a positive view of world affairs, solid journalistic practices often present the opposite side of the argument, presenting a true state of affairs. Examples include the Panama and Pandora Papers.
Therefore, it is important to differentiate between unsubstantiated rumors and facts. While many falling stocks will be blamed on bear raiders, the key for investors is discerning whether the company is in real trouble or if the sell-off is a temporary hiccup or due to other factors such as a market-wide or sector-wide selloff.
In politics, and also in international affairs, such as the invasion of Ukraine by Russia in 2022 it is important to differentiate between unsubstantiated rumors and facts.
George Soro and the Legal Bear Raid in the Pound Sterling
One of the most well-known legal bear raids in history involved George Soros. In 1992 George Soros began selling the British pound. By selling pounds, Soros was buying other currencies against the pound.
Soros was selling pounds because he believed that Britain would be unable to hold its currency within the band stipulated by the European Exchange Rate Mechanism (ERM). This mechanism was designed to stabilize exchange rates in Europe and required that the pound stay within 6% of other ERM currencies. The problem was that Britain had an inflation rate far higher than some other countries in the ERM, like Germany.
The ERM forced Britain to hold its currency up, within the band, at artificially high levels. Soros saw this and believed that ultimately Britain would be unable to hold the currency in the band for long and would eventually have to abandon the ERM. With the currency no longer artificially inflated by Britain buying pounds in an effort to hold the currency in the band, the pound would fall.
The Takeaway
Soro’s legal bear raid was a success. On September 16, 1992, Britain did abandon the ERM after several last-ditch attempts to support the currency—like raising interest rates from 10% to 12%, and then saying they would raise the rates to 15%, although that last raise didn't come to fruition.
After leaving the ERM the GBPUSD fell more than 25% by December 4.
The legal bear raid was a success, and Soros made approximately $1 billion for seeing the problem with the pound.
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Author: Lewis is a writer, teacher, and master results-oriented life coach. He is the author of over twenty books, numerous self-improvement, and personal development courses, and is the former host of a talk show on NPR Affiliated WIOX91.3 FM. He can be contacted at LewisCoaches@gmail.com
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